Other states want what we’ve got

Most Western Australians may not think of themselves as rich, but that’s not a view shared by those living in other states.

And that’s a problem for the WA government, which is facing what might be called the billionaire’s dilemma.

At its simplest, the problem for billionaires is that they become easy targets for beggars, thieves and governments suffering from Robin Hood syndrome: a desire to take from the rich to give to the poor, whether the poor deserve it or not.

For WA, that means a fresh attack on its share of GST revenue from states such as Victoria.

The difference between WA and Victoria has never been as stark as it is today, with state budgets a starting point in measuring the gap: Victoria is heading for a $4 billion deficit and WA is on track for a $3.7 billion surplus.

Much of this difference can be explained by WA’s remarkably successful resources sector. And while geological endowment has played a role, sensible government has encouraged investment.

In Victoria, the government has actively discouraged resources development, placing its faith in manufacturing (in competition with China) and education services (in competition with the rest of the world).

The chickens are coming home to roost in Melbourne, where some suburbs are starting to resemble the no-go zones of failed US cities such as San Francisco and Portland, which have rising crime, high rates of drug abuse, and homelessness.

Extreme lockdowns during the COVID years added to Victoria’s woes but the biggest issue is the explosion in government employees during the pandemic, which has led to claims it has become ‘the bureaucrat state’.

Two recent examples highlight the difference between WA and Victoria and the reason why the next GST carve-up will become a hot topic, despite federal government promises the allocation rules will not change and that WA’s share will be protected. Property prices, which are a factor in land tax (collected by the states), are effectively falling (after inflation) in Victoria and rising in WA.

Last year’s bumper 15.2 per cent increase in Perth house prices sits uncomfortably alongside Melbourne’s 4 per cent increase, and a fall of 0.3 per cent in the December quarter.

But the most important measures of the wealth gap WA is opening on other states – especially the increasingly impoverished Victoria – can be seen in the latest Coast-to-Coast report from Westpac Bank, a sort of state-by-state report card.

The overall assessment is that national economic growth has slowed to “stalling speed” thanks to the effects of high interest rates and income tax.

WA, however, is “charting a different course”, according to Westpac, with that 15.2 per cent rise in home prices a rough guide to how well the state is performing.

“The WA economy continues to perform considerably better than other states with signs that this divergence is starting to widen in WA’s favour,” Westpac said.

By most measures, WA is outperforming the rest of the country, which is pleasing if not for the looming problem when it comes to GST allocation.

The most telling numbers are not the totals of measures such as gross state product (GSP) but the breakdown on a per-capita basis, which is where the billionaire’s dilemma becomes most obvious.

According to Westpac, WA accounted for 17 per cent of national economic output. NSW led the way with 30 per cent and Victoria was second with 22 per cent.

Exports are even more interesting, with WA accounting for 42 per cent of Australia’s exports despite having just 11 per cent of the total population.

However, it’s when economic output is calculated on a per-capita basis that a remarkable picture emerges, with every Victorian responsible for $84,700 of GSP, close to half that of the $157,400 by everyone in WA.

GSP per capita is a very rough measure of a state’s wealth, but it can be argued that the average Western Australian is close to twice as productive as every Victorian.

What’s more interesting is that the difference between WA and Victoria is likely to keep widening, because the private sector is driving the WA economy whereas the counterproductive public sector dominates growth in Victoria.

Credit rating agencies have been warning for the past 12 months that Victoria is heading for a budget crisis, which has forced the government in Melbourne to raise taxes, such as a special COVID levy on business and increased property taxes.

Demand for a bigger slice of the GST pie will follow.